NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2023 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2023 2 BASIS OF PREPARATION (CONT’D) 2.4 Use of estimates and judgement (cont’d) Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is described in the following notes: Note 3.1(i) Accounting for acquisitions as business combinations or asset acquisitions Notes 3.1(iv), 43 and 44 Assessment of ability to control or exert significant influence over partly owned investments Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is described in the following notes: Notes 4 and 5 Measurement of recoverable amounts of property, plant and equipment, and investment properties Notes 7 and 41 Measurement of recoverable amounts of investments in subsidiaries and expected credit losses on balances with subsidiaries Note 13 Measurement of realisable amounts of development properties Measurement of fair values A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes a team that regularly reviews significant unobservable inputs and valuation adjustments and reports to the Group Chief Financial Officer who has overall responsibility for all significant fair value measurements. If third party information, such as broker quotes or independent valuers’ report, is used to measure fair values, then the team assesses and documents the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of SFRS(I), including the level in the fair value hierarchy in which the valuations should be classified. Significant valuation issues are reported to the Group’s Audit & Risk Committee and Board of Directors. When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: q uoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: i nputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: i nputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement (with Level 3 being the lowest). The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. 2 BASIS OF PREPARATION (CONT’D) 2.4 Use of estimates and judgement (cont’d) Further information about assumptions made in measuring fair values is included in the following notes: Note 5 Investment properties Note 39 Acquisition of subsidiaries Note 41 Financial instruments 2.5 Changes in material accounting policies (i) Accounting for financial guarantee contracts On 1 January 2023, the Group changed its accounting policy with respect to the accounting of financial guarantee contracts. Prior to 1 January 2023, the Group had regarded financial guarantee contracts as insurance contracts under SFRS(I) 4 Insurance Contracts. SFRS(I) 17 Insurance Contracts replaces SFRS(I) 4 for annual periods beginning on or after 1 January 2023. On transition to SFRS(I) 17, the Group made an irrevocable election to apply SFRS(I) 9 Financial Instruments, on a contract-by-contract basis, to all financial guarantee contracts. Following the change in accounting policy, the Group accounts for the financial guarantees by measuring and recognising them at fair value. Subsequently, these guarantees are measured at the higher of the loss allowance determined in accordance with SFRS(I) 9 and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of SFRS(I) 15. This change in accounting policy was applied retrospectively. There was no impact on the statement of financial position and the opening accumulated profits as at 1 January 2022 and 31 December 2022 as the carrying amount of the financial guarantee contracts was assessed to be negligible. (ii) New accounting standards and amendments The Group has applied the following amendments to SFRS(I) for the first time for the annual period beginning on 1 January 2023: • Amendments to SFRS(I) 1-12: Deferred tax related to Assets and Liabilities arising from a Single Transaction • Amendments to SFRS(I) 1-12: International Tax Reform – Pillar Two Model Rules • Amendments to SFRS(I) 1-1 and SFRS(I) Practice Statement 2: Disclosure of Accounting Policies • Amendments to SFRS(I) 1-8: Definition of Accounting Estimates Other than as described below, the application of these amendments to accounting standards and interpretations did not have a material effect on the financial statements. Deferred tax related to assets and liabilities arising from a single transaction The Group has adopted Amendments to SFRS(I) 1-12: Deferred Tax related to Assets and Liabilities arising from a Single Transaction from 1 January 2023. The amendments narrow the scope of the initial recognition exemption to exclude transactions that give rise to equal and offsetting temporary differences – e.g. leases and decommissioning liabilities. For leases, an entity is required to recognise the associated deferred tax assets and liabilities from the beginning of the earliest comparative period presented, with any cumulative effect recognised as an adjustment to accumulated profits or other components of equity at that date. For all other transactions, an entity applies the amendments to transactions that occur on or after the beginning of the earliest period presented. FINANCIALS FINANCIALS ANNUAL REPORT 2023 CITY DEVELOPMENTS LIMITED 135 134
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